ProfitNama

ProfitNama

Power Plants at Coal Pitheads – Impacts Explained for Investors

Are coal-fired power plants attractive for investment?

Introduction:

The article discusses the Indian government’s plans to set up future coal-fired power plants near coal mine pitheads instead of transporting coal to distant plants. This aims to reduce overall power generation costs by lowering coal transport expenses, which account for a large share.

Analysis of this news for a layman:

The article mentions several organizations – NITI Aayog is a Indian government policy think-tank, Coal India is a state-owned coal mining corporation, Ministry of Coal oversees coal production and policies. Central Electricity Authority (CEA) regulates India’s electricity sector.

Setting up pithead power plants means situating coal-fired plants near the mouths of coal mines rather than transporting coal via rail/road over long distances to coastal plants. This avoids transport costs and losses which can double the delivered coal cost to ~Rs.4,300-4,600/tonne. With coal production costs at ~Rs.2,000/tonne, transport is a major cost factor. Pithead plants can eliminate this leg of transport and its associated inefficiencies.

Original Analysis:

The shift to pithead power plants signals India’s focus on augmenting domestic coal capacity to meet growing power needs instead of coal imports. This could negatively impact coastal plants and allied industries like rail & road transport reliant on coal freight. Jobs related to coal handling/transport may reduce over time. States with fewer coal reserves may also be disadvantaged.

However, for coal-rich states with reserves near power demand centers, this signals growth opportunities in mining, logistics infrastructure around mines, and related employment. Cheaper power generation could also boost industrial growth in those regions. Executed well, the efficiency gains could free up coal and rail capacity for other uses.

Impact on Retail Investors:

For retail investors, companies owning coal mines and reserves may see valuation gains as pithead plants unlock greater value from the same assets. Mining contractors, materials/equipment providers for coal handling & power plant construction could see higher orders from pithead capacity addition. Logistics firms could witness a change in freight patterns impacting utilization.

Power distributors in states with pithead plants could supply cheaper power, improving their finances. States without local coal may need to budget for costlier imported coal-based power, weighing on their distribution utilities. Power sector equipment manufacturers may diversify portfolios to address inland pithead needs.

Cement, steel from states with upcoming pithead plants may turn cheaper, impacting competitors. CHEAPER INPUTS MAY IMPROVE Viability of END USER INDUSTRIES LIKE autos, improving sales and stock prices.

Impact on Industries:

Coal and freight railways sectors will see transport patterns and loading points change as coal travels shorter distances. Existing coal linkage policies may need realignment. Equipment/technology firms can tap pithead plant construction demand.

States with coal reserves gain from mining revenues, cheap power access. Those lacking reserves face risks of costlier power imports, straining state utility finances. Industries in such states may lag if power costs grow.

Coastal logistics firms, ports may lose coal handling business. But surplus rail network capacity can instead be used for container traffic. Coastal power plants reliant on imported coal may find domestic supply shrink, impacting production economics.

Companies will gain from this:

  • Coal India – Higher output potential as pithead capacity expands
  • NTPC, Tata Power – Well placed to expand pithead generation capacity
  • Adani Enterprises, GMR Infra – Opportunity in logistics/equipment around mines
  • Steel Authority of India – Cheaper power input for steelmaking units
  • Tata Motors, Bajaj Auto – Potential gains from cheaper power access

Companies which will lose from this:

  • Adani Ports, Shreyas Shipping – Lower coal handling volumes anticipated
  • Container Corporation of India – Some freight capacity diversion probable
  • Gujarat Industries Power, CESC – Reliant on coastal plants facing costlier coal

Additional Insights:

The shift signals India’s confidence in efficiently scaling domestic coal capacity. Success could boost indigenous output and self-sufficiency. An integrated approach across ministries indicates mature policy evolution.

Conclusion:

Locating future coal power plants near mine pitheads to eliminate transport expenses signals a strategic policy shift. It could disrupt coal logistics while benefiting domestic capacity investors. For investors, it opens playbook revisions across power, mining, freight rail and industry tilts.

A proper citation:

Mishra, Twesh. “Power Plants may be Set Up at Coal Pitheads to Cut Costs.” The Economic Times

error: Content is protected !!
Scroll to Top

Subscribe to Profitnama to access all articles, explanations, stock analysis
Already a member? Sign In Here